"Never time the market" vs. lump sum investment

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StormShadow
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Re: "Never time the market" vs. lump sum investment

Post by StormShadow » Fri Apr 12, 2019 11:41 pm

bonzai wrote:
Thu Jun 21, 2018 8:07 am
I understand the concept of "Never try to time the market"
No, you don't.
bonzai wrote:
Thu Jun 21, 2018 8:07 am
My situation is - I have a 7 figure sum to invest, at a single time - and I think the best way to do it, is to somehow wait for the next "market crash" (which seems to happen every few years?) - understand when I'm in this situation, and then perform the buy.
Yeah, this would be called "timing the market".

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rh00p
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Re: "Never time the market" vs. lump sum investment

Post by rh00p » Sat Apr 13, 2019 12:04 am

IMO when you DCA you're allocating time. I too have read the Vanguard article stating the lump sum historically gives greater returns but if one was to DCA they recommended to do so within a year. So what I'm currently doing is DCAing a $250K lump in a VG MM into a 3 fund portfolio in weekly autopay through October. If the S&P should drop 30% then I'm all in.

Either way I'm free to worry about more important things. Like GoT back on again this Sunday.
Preparing for the worst. Hoping for the best.

Hustlinghustling
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Re: "Never time the market" vs. lump sum investment

Post by Hustlinghustling » Sat Apr 13, 2019 1:20 am

Gosh, many here are so dogmatic with various topics here. International investing being another.

Market-timing proponents always get the hackneyed "if you can time the market, then did you buy in Dec 2018?" asked to them, moreso as a rhetorical point than a genuine query. When OP actually comes back - probably to the disappointment of his askers - and says yes indeed he did buy in December, then it's suddenly "you just got lucky" or "well, then why aren't you selling now?". can’t win either way

Obviously, OP was looking for an opportune time to invest a windfall for the long term. And he got it right. Dogmatically asking him why he isn't selling now and getting back in later is clearly missing the point. He was looking for an advantageous one time entry and got it. Yes, it's against boglehead principles. And yes, it worked out for him even if the methodology is flawed.

This dogmatic mentality is more apparent too in seeing how some who proclaim the superiority of lump sum investing vs DCA, would somehow still be vastly opposed to 100% equities. When both DCA and a bond allocation are just different forms of volatility mitigation that comes with a suboptimal expected value on the portfolio.

JustinR
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Re: "Never time the market" vs. lump sum investment

Post by JustinR » Sat Apr 13, 2019 3:14 am

Hustlinghustling wrote:
Sat Apr 13, 2019 1:20 am
Gosh, many here are so dogmatic with various topics here. International investing being another.

Market-timing proponents always get the hackneyed "if you can time the market, then did you buy in Dec 2018?" asked to them, moreso as a rhetorical point than a genuine query. When OP actually comes back - probably to the disappointment of his askers - and says yes indeed he did buy in December, then it's suddenly "you just got lucky" or "well, then why aren't you selling now?". can’t win either way

Obviously, OP was looking for an opportune time to invest a windfall for the long term. And he got it right. Dogmatically asking him why he isn't selling now and getting back in later is clearly missing the point. He was looking for an advantageous one time entry and got it. Yes, it's against boglehead principles. And yes, it worked out for him even if the methodology is flawed.

This dogmatic mentality is more apparent too in seeing how some who proclaim the superiority of lump sum investing vs DCA, would somehow still be vastly opposed to 100% equities. When both DCA and a bond allocation are just different forms of volatility mitigation that comes with a suboptimal expected value on the portfolio.
The methodology of DCA isn't just "flawed", it's complete nonsense. The fact he came out ahead is actually simple luck, which is an expected result.

Having $1,000,000 of new money to invest is equivalent to having $1,000,000 already invested in your 401k or Roth IRA.

The two situations are exactly the same.

It's interesting, then, that never in the history of mankind has anyone sold their entire 401k to "DCA back in since these times are turbulent."

Why don't we ever get those threads? "Hey Bogleheads, these times are turbulent...should I sell my seven figure 401k and DCA back in?" or "I've decided to compromise and sell half my seven figure 401k and DCA back in."

This is nothing like international allocation or 100% equities. There's literally nothing to debate here. DCA is mental accounting + gambling. Some people win, most lose.

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Re: "Never time the market" vs. lump sum investment

Post by Hustlinghustling » Sat Apr 13, 2019 4:07 am

I dont disagree. but also am open to the fact some people are better off taking mathematically SUBoptimal choices, even when the main benefit is simply emotional

in fact, isnt that a big argument for bond allocation? to moderate volatility so you can psychologically bear the swings and not be persuaded to sell when markets tank. naturally a 100% equities portfolio has a higher theoretical return than a 60/40 one. as does a lump sum investment vs dca. both lump sum or 100% equities return more by simple fact of having more in the market for longer. yet few normally seem to be supporters of both.

sometimes the law of averages can only be relied on so much particularly when it is a one off event without repeated samples for mean reversion to be reasonably expected and i’m not going to knock OP for being a “winner” in this instance

don’t get me wrong. i agree that OP probably just got lucky. but for a one off event he got it RIGHT, and that is all he was trying to do. also its a circular argument presented here. if he wasnt astute enough to buy in december, then he clearly can’t market time. however if he actually did buy and timed it accurately, it was merely a lucky coincidence. damned if he does or doesnt.

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Re: "Never time the market" vs. lump sum investment

Post by Hustlinghustling » Sat Apr 13, 2019 9:42 pm

To elaborate a bit on the dogmatism. OP predicted a crash. Crash comes as predicted. OP invests during the crash. Yet everyone still saying he did it wrong?

Agreed if this was his repeated strategy for his regular contributions, he would - on average - come out worse off. But for this one time once in a lifetime windfall, he was justifiably nervous about putting money in last year with the benefit of hindsight. Now he's got more $ in his account for this life altering amount than if he put it in June when everyone told him to, and the markets did as he predicted it would. Yet somehow he still did it wrong :?

In what circumstance can any alternative method be accepted if the above is still a losing proposition?

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tadamsmar
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Re: "Never time the market" vs. lump sum investment

Post by tadamsmar » Sat Apr 13, 2019 10:08 pm

So you think he makes sense. So, now, answer his question: "If it does make sense, do you have any practical advise as to how to do this - to detect a crash (and not a single day lapse), and quickly-enough perform a buy of ETF/MT?"

Give him your plan that gets him this emotional benefit you speak of.

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Re: "Never time the market" vs. lump sum investment

Post by DonIce » Sat Apr 13, 2019 10:17 pm

tadamsmar wrote:
Sat Apr 13, 2019 10:08 pm
So you think he makes sense. So, now, answer his question: "If it does make sense, do you have any practical advise as to how to do this - to detect a crash (and not a single day lapse), and quickly-enough perform a buy of ETF/MT?"
To detect a crash all you've got to do is look at the price. If it's a lot lower than it was at some point in the past, you're in a crash. To quickly-enough perform a buy of an ETF, you press the "buy" button (perhaps prefaced by pressing the "sell" button on whatever non-equity asset you were holding before).

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Re: "Never time the market" vs. lump sum investment

Post by Hustlinghustling » Sat Apr 13, 2019 10:38 pm

tadamsmar wrote:
Sat Apr 13, 2019 10:08 pm
So you think he makes sense. So, now, answer his question: "If it does make sense, do you have any practical advise as to how to do this - to detect a crash (and not a single day lapse), and quickly-enough perform a buy of ETF/MT?"

Give him your plan that gets him this emotional benefit you speak of.
DCA. it’s an emotional crutch. agree it is irrational in the paradigm of an efficient market to do so and the only benefit is volatility mitigation. however, much like a bond allocation in that sense is intended to help you handle your emotions and prevent rash behaviour in times of market turmoil.

my issue is how no one ever considers bond allocation to be “irrational” or suboptimal when it is a very similar trade off made in DCA sacrificing returns for moderated volatility. same objective, different means.

as for this OP, and detecting crash, perhaps i should be asking him. who am i to say he’s just lucky when he predicted a crash, it came and he indeed bought at the time?
Last edited by Hustlinghustling on Sat Apr 13, 2019 10:44 pm, edited 1 time in total.

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Re: "Never time the market" vs. lump sum investment

Post by MotoTrojan » Sat Apr 13, 2019 10:41 pm

Tamalak wrote:
Thu Jun 21, 2018 8:36 am
If it were a good idea to wait for a market crash before investing, then it would be a good idea to sell CURRENT investments and wait for a market crash before re-investing.

We 'buy' our portfolios every day by keeping them invested.

If the market drops 20%, you lose 20%. It doesn't matter whether you've been invested for 10 years or 10 seconds. The loss is the same. It doesn't FEEL the same (it's a lot more frustrating if you've been invested for 10 seconds!), but it is the same.
This. If you had $2.5M from a life of 401K investing would you withdraw it and wait for a crash? Pick an AA you’re comfortable with, invest, and research tax-loss harvesting so you can benefit if it drops at all.

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Re: "Never time the market" vs. lump sum investment

Post by MotoTrojan » Sat Apr 13, 2019 10:42 pm

JustinR wrote:
Sat Apr 13, 2019 3:14 am
Hustlinghustling wrote:
Sat Apr 13, 2019 1:20 am
Gosh, many here are so dogmatic with various topics here. International investing being another.

Market-timing proponents always get the hackneyed "if you can time the market, then did you buy in Dec 2018?" asked to them, moreso as a rhetorical point than a genuine query. When OP actually comes back - probably to the disappointment of his askers - and says yes indeed he did buy in December, then it's suddenly "you just got lucky" or "well, then why aren't you selling now?". can’t win either way

Obviously, OP was looking for an opportune time to invest a windfall for the long term. And he got it right. Dogmatically asking him why he isn't selling now and getting back in later is clearly missing the point. He was looking for an advantageous one time entry and got it. Yes, it's against boglehead principles. And yes, it worked out for him even if the methodology is flawed.

This dogmatic mentality is more apparent too in seeing how some who proclaim the superiority of lump sum investing vs DCA, would somehow still be vastly opposed to 100% equities. When both DCA and a bond allocation are just different forms of volatility mitigation that comes with a suboptimal expected value on the portfolio.
The methodology of DCA isn't just "flawed", it's complete nonsense. The fact he came out ahead is actually simple luck, which is an expected result.

Having $1,000,000 of new money to invest is equivalent to having $1,000,000 already invested in your 401k or Roth IRA.

The two situations are exactly the same.

It's interesting, then, that never in the history of mankind has anyone sold their entire 401k to "DCA back in since these times are turbulent."

Why don't we ever get those threads? "Hey Bogleheads, these times are turbulent...should I sell my seven figure 401k and DCA back in?" or "I've decided to compromise and sell half my seven figure 401k and DCA back in."

This is nothing like international allocation or 100% equities. There's literally nothing to debate here. DCA is mental accounting + gambling. Some people win, most lose.
Perfectly said/understood.

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Re: "Never time the market" vs. lump sum investment

Post by CoastalWinds » Sat Apr 13, 2019 11:13 pm

MotoTrojan wrote:
Sat Apr 13, 2019 10:42 pm
JustinR wrote:
Sat Apr 13, 2019 3:14 am
Hustlinghustling wrote:
Sat Apr 13, 2019 1:20 am
Gosh, many here are so dogmatic with various topics here. International investing being another.

Market-timing proponents always get the hackneyed "if you can time the market, then did you buy in Dec 2018?" asked to them, moreso as a rhetorical point than a genuine query. When OP actually comes back - probably to the disappointment of his askers - and says yes indeed he did buy in December, then it's suddenly "you just got lucky" or "well, then why aren't you selling now?". can’t win either way

Obviously, OP was looking for an opportune time to invest a windfall for the long term. And he got it right. Dogmatically asking him why he isn't selling now and getting back in later is clearly missing the point. He was looking for an advantageous one time entry and got it. Yes, it's against boglehead principles. And yes, it worked out for him even if the methodology is flawed.

This dogmatic mentality is more apparent too in seeing how some who proclaim the superiority of lump sum investing vs DCA, would somehow still be vastly opposed to 100% equities. When both DCA and a bond allocation are just different forms of volatility mitigation that comes with a suboptimal expected value on the portfolio.
The methodology of DCA isn't just "flawed", it's complete nonsense. The fact he came out ahead is actually simple luck, which is an expected result.

Having $1,000,000 of new money to invest is equivalent to having $1,000,000 already invested in your 401k or Roth IRA.

The two situations are exactly the same.

It's interesting, then, that never in the history of mankind has anyone sold their entire 401k to "DCA back in since these times are turbulent."

Why don't we ever get those threads? "Hey Bogleheads, these times are turbulent...should I sell my seven figure 401k and DCA back in?" or "I've decided to compromise and sell half my seven figure 401k and DCA back in."

This is nothing like international allocation or 100% equities. There's literally nothing to debate here. DCA is mental accounting + gambling. Some people win, most lose.
Perfectly said/understood.
When dealing with a windfall, couldn’t one use the argument of hedging against a sort of sequence of returns risk? It seems similar in concept to being somewhat conservative at the start of retirement and then going on a rising equity glide path.

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Earl Lemongrab
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Re: "Never time the market" vs. lump sum investment

Post by Earl Lemongrab » Sat Apr 13, 2019 11:39 pm

Hustlinghustling wrote:
Sat Apr 13, 2019 9:42 pm
To elaborate a bit on the dogmatism. OP predicted a crash. Crash comes as predicted. OP invests during the crash. Yet everyone still saying he did it wrong?
If someone puts their retirement savings on 7 at the roulette table, and it comes up 7, would you say it was wrong? After all, it worked out!
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Earl Lemongrab
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Re: "Never time the market" vs. lump sum investment

Post by Earl Lemongrab » Sat Apr 13, 2019 11:41 pm

CoastalWinds wrote:
Sat Apr 13, 2019 11:13 pm
When dealing with a windfall, couldn’t one use the argument of hedging against a sort of sequence of returns risk? It seems similar in concept to being somewhat conservative at the start of retirement and then going on a rising equity glide path.
There's no difference between a windfall and money you already have. It's just mental accounting and anchoring. A large windfall might warrant reexaming your asset allocation, but that should be permanent, at least for a certain period.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: "Never time the market" vs. lump sum investment

Post by Hustlinghustling » Sat Apr 13, 2019 11:44 pm

Earl Lemongrab wrote:
Sat Apr 13, 2019 11:39 pm
Hustlinghustling wrote:
Sat Apr 13, 2019 9:42 pm
To elaborate a bit on the dogmatism. OP predicted a crash. Crash comes as predicted. OP invests during the crash. Yet everyone still saying he did it wrong?
If someone puts their retirement savings on 7 at the roulette table, and it comes up 7, would you say it was wrong? After all, it worked out!
i’m being facetious too but if he said in advance he has an ability to predict the outcome, that it’s going to be 7, he’s betting big on 7 and it ends up 7... most certainly i cannot say he’s wrong.

this highlights the source of the dogmatism in the discussion too as for roulette, randomness of outcome is readily accepted as a given so the scenario naturally seems ridiculous. but maybe he’s got insight into the lay of the table or the wheel such that the basis for randomness is undermined. the assumption of randomness in markets is precisely what is contentious in this discussion. and he did exactly as someone who claims superior insight to market movements should do. if he loses the argument even when he wins, then what basis for discussion is there?
Last edited by Hustlinghustling on Sun Apr 14, 2019 2:25 am, edited 2 times in total.

confusedinvestor
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Re: "Never time the market" vs. lump sum investment

Post by confusedinvestor » Sun Apr 14, 2019 12:47 am

If you have zero experience in investing, yet, you are quick learner, I suggest you read the bogleheads wiki first and do nothing for few weeks before investing. I think you might be a good candidate for VPAS service.

bonzai wrote:
Thu Jun 21, 2018 8:07 am
I have zero experience in investing, but I'm a quick learner and I intend to begin soon.

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Wiggums
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Re: "Never time the market" vs. lump sum investment

Post by Wiggums » Sun Apr 14, 2019 1:11 am

If the Market goes down 30% in five weeks do you invest? Maybe you would. However, if anybody says the market has more downside, the money won’t get invested. And that is why so many of the responses say you can’t time the market. Not Everybody can go from 100% cash to fully invested when the market has Declined a lot.

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Re: "Never time the market" vs. lump sum investment

Post by KJVanguard » Sun Apr 14, 2019 2:43 am

JustinR wrote:
Sun Jun 24, 2018 1:31 am
Invest it all in at once.
Invest it all at once and pray that you didn't jump all in as of September 1929 or December 1972 or March 2000 or various other bad times to invest. Or hope you are not a Japanese investor who bet it all at the peak in December 1989, a very depressed investor who is still waiting to see capital gains 30 years later.

Lump sum investing usually works, but then you could play Russian Roulette since you usually won't end up with a bullet in your brain. Despite both working most of the time, I would discourage anyone for playing either of these dangerous games. DCA recognized the natural human aversion to loss, it recognizes how real people investing real money will tend to panic and sell at the bottom of a bear market. It's not easy to invest a million dollars and see half of that disappear.

If you are a Vanguard investor, then odds are you believe in buying a great number of stocks (or bonds) to avoid betting on the wrong thing. Well, then doesn't it make sense to invest over a period of time such that you're not betting it all on one particular date? Think of it as diversifying time of purchase. I fully recognize that on average the market tends to go up, thus investing today is likely to be better than investing next month or next year. Despite that I still don't want to bet everything on just one particular date, a date which has the potential to be the worse date in history to invest.

If we simply wanted to invest in the manner which was probably going to produce the highest return, then we wouldn't just invest in a lump sum, we would also put 100% into stock since that too is the winning strategy on average (hell, might as well buy small-cap value stocks in emerging markets on margin all bought immediately in a lump sum).

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Re: "Never time the market" vs. lump sum investment

Post by KJVanguard » Sun Apr 14, 2019 2:47 am

Wiggums wrote:
Sun Apr 14, 2019 1:11 am
If the Market goes down 30% in five weeks do you invest? Maybe you would. However, if anybody says the market has more downside, the money won’t get invested. And that is why so many of the responses say you can’t time the market. Not Everybody can go from 100% cash to fully invested when the market has Declined a lot.
I would feel compelled to time the market, even though I am told that timing is a sin. If the market was at an all time high I would hesitate to lump sum invest. Of course, that could be the wrong choice at the market could very well keep soaring to even higher levels. How fast I invested would be influenced by bull & bear markets. I would feel a desire to invest more rapidly if the market were down 50%.

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tadamsmar
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Re: "Never time the market" vs. lump sum investment

Post by tadamsmar » Sun Apr 14, 2019 4:29 am

DonIce wrote:
Sat Apr 13, 2019 10:17 pm
tadamsmar wrote:
Sat Apr 13, 2019 10:08 pm
So you think he makes sense. So, now, answer his question: "If it does make sense, do you have any practical advise as to how to do this - to detect a crash (and not a single day lapse), and quickly-enough perform a buy of ETF/MT?"
To detect a crash all you've got to do is look at the price. If it's a lot lower than it was at some point in the past, you're in a crash. To quickly-enough perform a buy of an ETF, you press the "buy" button (perhaps prefaced by pressing the "sell" button on whatever non-equity asset you were holding before).
Not specific enough. Provide an actual operational plan that is not vague.

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tadamsmar
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Re: "Never time the market" vs. lump sum investment

Post by tadamsmar » Sun Apr 14, 2019 4:44 am

Hustlinghustling wrote:
Sat Apr 13, 2019 10:38 pm
tadamsmar wrote:
Sat Apr 13, 2019 10:08 pm
So you think he makes sense. So, now, answer his question: "If it does make sense, do you have any practical advise as to how to do this - to detect a crash (and not a single day lapse), and quickly-enough perform a buy of ETF/MT?"

Give him your plan that gets him this emotional benefit you speak of.
DCA. it’s an emotional crutch. agree it is irrational in the paradigm of an efficient market to do so and the only benefit is volatility mitigation. however, much like a bond allocation in that sense is intended to help you handle your emotions and prevent rash behaviour in times of market turmoil.

my issue is how no one ever considers bond allocation to be “irrational” or suboptimal when it is a very similar trade off made in DCA sacrificing returns for moderated volatility. same objective, different means.

as for this OP, and detecting crash, perhaps i should be asking him. who am i to say he’s just lucky when he predicted a crash, it came and he indeed bought at the time?
I think you are right that DCA is mostly harmless, and people say it provides an emotional benefit. DCA does not meet the specific stipulations in the OP, but perhaps he would drop those and go for DCA.

Your references to bond allocations show that you don't understand the crux of the matter in the irrationality claim. There is a logical fallacy in DCAing a lump sum that does not apply to bond allocation. I have mentioned it on this thread here:

viewtopic.php?f=1&t=252212&start=50#p4489973

and it have been referred to 30 other times on the Boglehead forum.
Last edited by tadamsmar on Sun Apr 14, 2019 9:04 am, edited 1 time in total.

JustinR
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Re: "Never time the market" vs. lump sum investment

Post by JustinR » Sun Apr 14, 2019 7:05 am

KJVanguard wrote:
Sun Apr 14, 2019 2:43 am
JustinR wrote:
Sun Jun 24, 2018 1:31 am
Invest it all in at once.
Invest it all at once and pray that you didn't jump all in as of September 1929 or December 1972 or March 2000 or various other bad times to invest. Or hope you are not a Japanese investor who bet it all at the peak in December 1989, a very depressed investor who is still waiting to see capital gains 30 years later.

Lump sum investing usually works, but then you could play Russian Roulette since you usually won't end up with a bullet in your brain. Despite both working most of the time, I would discourage anyone for playing either of these dangerous games. DCA recognized the natural human aversion to loss, it recognizes how real people investing real money will tend to panic and sell at the bottom of a bear market. It's not easy to invest a million dollars and see half of that disappear.

If you are a Vanguard investor, then odds are you believe in buying a great number of stocks (or bonds) to avoid betting on the wrong thing. Well, then doesn't it make sense to invest over a period of time such that you're not betting it all on one particular date? Think of it as diversifying time of purchase. I fully recognize that on average the market tends to go up, thus investing today is likely to be better than investing next month or next year. Despite that I still don't want to bet everything on just one particular date, a date which has the potential to be the worse date in history to invest.

If we simply wanted to invest in the manner which was probably going to produce the highest return, then we wouldn't just invest in a lump sum, we would also put 100% into stock since that too is the winning strategy on average (hell, might as well buy small-cap value stocks in emerging markets on margin all bought immediately in a lump sum).
The thing you are missing is that having $1,000,000 ready to invest is exactly the same as having $1,000,000 already invested in your 401k. There's no difference at all.

If you think DCA-ing "new money" makes sense, then you should also think selling your entire 401k and DCA-ing it back in makes sense.

The thing you're hung up on is "betting everything on one particular date." If that's true, then every day you don't sell your entire 401k is "betting everything on one particular date."

The phenomenon of people thinking that these two situations are different is called mental accounting.

This is the crux of the nonsense that is DCA. It's not based on any reason or logic. It's not a strategy. It's nothing at all. Being "suboptimal" isn't even the point. It's like if I told you to invest only in years that are divisible by 6. You could call that a "suboptimal strategy" and we could have endless threads debating its usefulness...but really, it's nothing. There's nothing to discuss. It's a waste of time.

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Re: "Never time the market" vs. lump sum investment

Post by dbr » Sun Apr 14, 2019 8:41 am

JustinR wrote:
Sun Apr 14, 2019 7:05 am

The thing you are missing is that having $1,000,000 ready to invest is exactly the same as having $1,000,000 already invested in your 401k. There's no difference at all.

If you think DCA-ing "new money" makes sense, then you should also think selling your entire 401k and DCA-ing it back in makes sense.

The thing you're hung up on is "betting everything on one particular date." If that's true, then every day you don't sell your entire 401k is "betting everything on one particular date."

The phenomenon of people thinking that these two situations are different is called mental accounting.

This is the crux of the nonsense that is DCA. It's not based on any reason or logic. It's not a strategy. It's nothing at all. Being "suboptimal" isn't even the point. It's like if I told you to invest only in years that are divisible by 6. You could call that a "suboptimal strategy" and we could have endless threads debating its usefulness...but really, it's nothing. There's nothing to discuss. It's a waste of time.
Which is exactly why I suggest the point of view that the discussion is not about when to invest but should explore questions about whether to invest, or more specifically is the investor really comfortable with the new asset allocation that he is committing himself to. In the context of making that choice every day this would be like someone already invested who really does want to sell today because he is not comfortable with what he has.

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goingup
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Re: "Never time the market" vs. lump sum investment

Post by goingup » Sun Apr 14, 2019 9:03 am

Hey, I give the OP credit for lumping in half his windfall in December. It did take some nerve to buy in when it felt like the market was plunging into bear territory.

The question is what now? Personally, I'd want to write down a plan for getting that money invested and automate a monthly/quarterly purchase.

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bonzai
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Re: "Never time the market" vs. lump sum investment

Post by bonzai » Sun Apr 14, 2019 2:57 pm

The DCA vs lump sum discussion is not very relevant here, I prefer to invest the money and “forget it” and let it do its thing, rather than me having to actively manage it by DCA’ing in parts.

As for the big “money is fungible, whether you have it in cash or invested already is the same, and all people invested in the market are making the choice every day to lump-sum it all (not waiting for a crash)” debate - this is not a correct comparison at all.

I’m not saying that people already invested in the market should consider selling it all and waiting for a crash, all the time - this is what i’d call gambling (and inefficient due to taxes/brokerage fees etc) and its also hard to maintain and do as a routine.

What I am arguing for here, which was my question when I only started and eventually I ended up doing successfully (you can say it’s luck - it doesn’t matter, the numbers are the only thing that matters):

When a person is not invested in the market, and has cash in a bank account, that cash value is not volatile (let’s assume USD/EUR currency) - while in parallel, the stock market is volatile - and this “entering into the market” from stable-cash - is important, especially when the sums are big, and when I want to do it in one or two chunks and leave it be (aside rebalancing every some time). So of course I’m much better off waiting (even waiting a year+) for some crash - any crash (yes, it’s possible to define it as a rule, eg when nasdaq is at a 10 year low, or when the price drops 30% etc), and only then buy in, knowing that during my wait time the value of my money remains consistent. Basically - I’m not saying this should be a routine, but since I’m entering new money into the market, I can afford waiting and choose some crisis/opportune moment for buying in.

It’s different than a situation of someone who is already invested, and the value of their invested money is volatile (Up/down, hopefully up), and they consider using their volatile-invested-money by selling them all for consistent-valued-cash, and waiting for the price to drop to buy back in to the volatile-market- because this “routine” is gambling and the odds are considerably against the gambler.

I hope I make at least a little bit of sense and I am glad to learn why not :)

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Re: "Never time the market" vs. lump sum investment

Post by JustinR » Sun Apr 14, 2019 4:01 pm

bonzai wrote:
Sun Apr 14, 2019 2:57 pm
The DCA vs lump sum discussion is not very relevant here, I prefer to invest the money and “forget it” and let it do its thing, rather than me having to actively manage it by DCA’ing in parts.

As for the big “money is fungible, whether you have it in cash or invested already is the same, and all people invested in the market are making the choice every day to lump-sum it all (not waiting for a crash)” debate - this is not a correct comparison at all.

I’m not saying that people already invested in the market should consider selling it all and waiting for a crash, all the time - this is what i’d call gambling (and inefficient due to taxes/brokerage fees etc) and its also hard to maintain and do as a routine.

What I am arguing for here, which was my question when I only started and eventually I ended up doing successfully (you can say it’s luck - it doesn’t matter, the numbers are the only thing that matters):

When a person is not invested in the market, and has cash in a bank account, that cash value is not volatile (let’s assume USD/EUR currency) - while in parallel, the stock market is volatile - and this “entering into the market” from stable-cash - is important, especially when the sums are big, and when I want to do it in one or two chunks and leave it be (aside rebalancing every some time). So of course I’m much better off waiting (even waiting a year+) for some crash - any crash (yes, it’s possible to define it as a rule, eg when nasdaq is at a 10 year low, or when the price drops 30% etc), and only then buy in, knowing that during my wait time the value of my money remains consistent. Basically - I’m not saying this should be a routine, but since I’m entering new money into the market, I can afford waiting and choose some crisis/opportune moment for buying in.

It’s different than a situation of someone who is already invested, and the value of their invested money is volatile (Up/down, hopefully up), and they consider using their volatile-invested-money by selling them all for consistent-valued-cash, and waiting for the price to drop to buy back in to the volatile-market- because this “routine” is gambling and the odds are considerably against the gambler.

I hope I make at least a little bit of sense and I am glad to learn why not :)
Well, you're wrong.

It's not "hard to maintain and do as a routine" to transfer your entire 401k to a money market fund.

In one click your entire 401k can also be "not invested in the market and cash in a bank account" -- exactly the same as a windfall. And you can do it whenever you want. You can do it every other day if you want.

Every day you don't sell your $1,000,000 401k is a day you're lump summing. It's equivalent to lump summing your $1,000,000 windfall into those same equities that day.

There is no difference between having a windfall and having money already invested. They are the same thing. Thinking that they're different is exactly what's been pointed out over and over in this thread. It's a cognitive fallacy called mental accounting.

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Re: "Never time the market" vs. lump sum investment

Post by Hustlinghustling » Sun Apr 14, 2019 5:03 pm

bonzai wrote:
Sun Apr 14, 2019 2:57 pm
So of course I’m much better off waiting (even waiting a year+) for some crash - any crash (yes, it’s possible to define it as a rule, eg when nasdaq is at a 10 year low, or when the price drops 30% etc)
i’ve defended you till now but recognize this crash could well be much higher than today’s levels. if SP500 doubles from today’s 2900 to 5800, then “crashes” 30% to 4000, your crash criteria would have been fulfilled to buy then but still at a price much higher than today’s. alternatively if you mean 30% off from today’s levels, it is highly conceivably you may also never buy, being forever on the sidelines

“Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves”

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Re: "Never time the market" vs. lump sum investment

Post by DonIce » Sun Apr 14, 2019 5:08 pm

JustinR wrote:
Sun Apr 14, 2019 4:01 pm
Well, you're wrong.

It's not "hard to maintain and do as a routine" to transfer your entire 401k to a money market fund.

In one click your entire 401k can also be "not invested in the market and cash in a bank account" -- exactly the same as a windfall. And you can do it whenever you want. You can do it every other day if you want.

Every day you don't sell your $1,000,000 401k is a day you're lump summing. It's equivalent to lump summing your $1,000,000 windfall into those same equities that day.
His $1M is obviously not in a 401k since it's a windfall. So it has to be mostly in taxable. Selling after its gone up means paying taxes. And even barring taxes, there are costs and spreads to pay every time you buy/sell. Therefore he can plausibly argue that he should wait for a good "buying opportunity" for the initial investment and then not trade any more after that.

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Re: "Never time the market" vs. lump sum investment

Post by Hustlinghustling » Sun Apr 14, 2019 8:34 pm

DonIce wrote:
Sun Apr 14, 2019 5:08 pm
JustinR wrote:
Sun Apr 14, 2019 4:01 pm
Well, you're wrong.

It's not "hard to maintain and do as a routine" to transfer your entire 401k to a money market fund.

In one click your entire 401k can also be "not invested in the market and cash in a bank account" -- exactly the same as a windfall. And you can do it whenever you want. You can do it every other day if you want.

Every day you don't sell your $1,000,000 401k is a day you're lump summing. It's equivalent to lump summing your $1,000,000 windfall into those same equities that day.
His $1M is obviously not in a 401k since it's a windfall. So it has to be mostly in taxable. Selling after its gone up means paying taxes. And even barring taxes, there are costs and spreads to pay every time you buy/sell. Therefore he can plausibly argue that he should wait for a good "buying opportunity" for the initial investment and then not trade any more after that.
Agree. beating this drum over and over will not change that this was never in the cards for OP to consider. It's clearly a windfall he intends to buy and hold, set and forget. many things in life we don't carry to the full logical end. buying and selling this sum repeatedly obviously is not at play here either and is dogmatic/unproductive to hold him to this.

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Re: "Never time the market" vs. lump sum investment

Post by dogagility » Mon Apr 15, 2019 4:58 am

bonzai wrote:
Sun Apr 14, 2019 2:57 pm
When a person is not invested in the market, and has cash in a bank account, that cash value is not volatile (let’s assume USD/EUR currency) - while in parallel, the stock market is volatile - and this “entering into the market” from stable-cash - is important, especially when the sums are big, and when I want to do it in one or two chunks and leave it be (aside rebalancing every some time). So of course I’m much better off waiting (even waiting a year+) for some crash - any crash (yes, it’s possible to define it as a rule, eg when nasdaq is at a 10 year low, or when the price drops 30% etc), and only then buy in, knowing that during my wait time the value of my money remains consistent. Basically - I’m not saying this should be a routine, but since I’m entering new money into the market, I can afford waiting and choose some crisis/opportune moment for buying in.
What you are describing is market timing. As pointed out above, the asking price after your hypothetical "crash" has a good chance of still being higher than the current asking price. Since the market has a general upward trajectory, time sitting on the sidelines generally results in lower returns.
bonzai wrote:
Sun Apr 14, 2019 2:57 pm
It’s different than a situation of someone who is already invested, and the value of their invested money is volatile (Up/down, hopefully up), and they consider using their volatile-invested-money by selling them all for consistent-valued-cash, and waiting for the price to drop to buy back in to the volatile-market- because this “routine” is gambling and the odds are considerably against the gambler.
If your money is a long-term (7+ years) investment, my suggestion to you is to stop equating market volatility with potential loss of principal.
Image
Taking "risk" since 1995.

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Re: "Never time the market" vs. lump sum investment

Post by tadamsmar » Mon Apr 15, 2019 7:05 am

Hustlinghustling wrote:
Sun Apr 14, 2019 8:34 pm
It's clearly a windfall he intends to buy and hold, set and forget. many things in life we don't carry to the full logical end. buying and selling this sum repeatedly obviously is not at play here either and is dogmatic/unproductive to hold him to this.
It's not obvious what he will do in the future.

We have this theory that there is a type of investor that DCAs a lump sum and otherwise acts like a Boglehead. It's just a theory that the psychological type exists. And it's an additional theory that a particular investor falls into this category.

Actually, this OP does not even fall into this category. He refuses to DCA. So you have to have a different theory about him being an otherwise reliable Boglehead.

This theory was first put forward by investment advisors who were getting fees and loads. It is in their interest to not have investors blame them if the market tanks just after they invest a lump sum.

I know of zero empirical data to back up this theory. An OP does not even fit the profile of the investor who is open to DCAing a lump sum.

Some of us are trying to educate the guy because we are not convinced he will end up doing what he says he intends to do.
Last edited by tadamsmar on Mon Apr 15, 2019 8:21 am, edited 2 times in total.

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Re: "Never time the market" vs. lump sum investment

Post by JustinR » Mon Apr 15, 2019 7:18 am

DonIce wrote:
Sun Apr 14, 2019 5:08 pm
JustinR wrote:
Sun Apr 14, 2019 4:01 pm
Well, you're wrong.

It's not "hard to maintain and do as a routine" to transfer your entire 401k to a money market fund.

In one click your entire 401k can also be "not invested in the market and cash in a bank account" -- exactly the same as a windfall. And you can do it whenever you want. You can do it every other day if you want.

Every day you don't sell your $1,000,000 401k is a day you're lump summing. It's equivalent to lump summing your $1,000,000 windfall into those same equities that day.
His $1M is obviously not in a 401k since it's a windfall. So it has to be mostly in taxable. Selling after its gone up means paying taxes. And even barring taxes, there are costs and spreads to pay every time you buy/sell. Therefore he can plausibly argue that he should wait for a good "buying opportunity" for the initial investment and then not trade any more after that.
...the 401k thing is a simple example to demonstrate mental accounting and the absurdity of DCA.

Nobody is asking him to actually do that.
Last edited by JustinR on Mon Apr 15, 2019 7:21 am, edited 1 time in total.

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Re: "Never time the market" vs. lump sum investment

Post by tadamsmar » Mon Apr 15, 2019 7:18 am

bonzai wrote:
Thu Jun 21, 2018 8:07 am
Hi,

I understand the concept of "Never try to time the market" - however, in my particular situation I believe it's not applicable - and would like to hear what you have to say about it. I have zero experience in investing, but I'm a quick learner and I intend to begin soon.

My situation is - I have a 7 figure sum to invest, at a single time - and I think the best way to do it, is to somehow wait for the next "market crash" (which seems to happen every few years?) - understand when I'm in this situation, and then perform the buy.

Other than that - I plan on making smaller monthly investments - in which case I agree with the "Never try to time the market" concept fully and can perform such investments automatically / without waiting on a periodic basis.

  • What are your thoughts about his?
  • Am I making some mistake or do you agree that for a large one-lump-sum investment, it does make sense to time the market?
  • If it does make sense, do you have any practical advise as to how to do this - to detect a crash (and not a single day lapse), and quickly-enough perform a buy of ETF/MT?
One problem with your plan is that you don't define "crash". So we don't know what your actual plan is. For instance, I have an actual target percentage of bonds for my AA. Do you have clear, quantified specification for what market behavior would cause you to invest this lump sum? Written plans, called "investment policy statements" (IPS) are recommended for Bogleheads. Perhaps you should create a written plan for this action you plan to take.
Last edited by tadamsmar on Mon Apr 15, 2019 8:56 am, edited 3 times in total.

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Re: "Never time the market" vs. lump sum investment

Post by vineviz » Mon Apr 15, 2019 7:31 am

tadamsmar wrote:
Mon Apr 15, 2019 7:05 am
Hustlinghustling wrote:
Sun Apr 14, 2019 8:34 pm
It's clearly a windfall he intends to buy and hold, set and forget. many things in life we don't carry to the full logical end. buying and selling this sum repeatedly obviously is not at play here either and is dogmatic/unproductive to hold him to this.
It's not obvious what he will do in the future.

We have this theory that there is a type of investor that DCAs a lump sum and otherwise acts like a Boglehead. It's just a theory that the psychological type exists. And it's an additional theory that a particular investor falls into this category.

It’s no myth that virtually every investor has goals other than maximizing returns.

It’s also no myth that facts alone rarely persuade people to make lasting behavioral change.

Even when investors are aware the using some form of averaging to invest their windfalls is NOT likely to maximize return, many will choose to average anyway.

So long as the statistical advantages of lump sum investing are made clear, what do we gain from trying to bully them into doing something they clearly prefer not to do?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: "Never time the market" vs. lump sum investment

Post by tadamsmar » Mon Apr 15, 2019 7:41 am

vineviz wrote:
Mon Apr 15, 2019 7:31 am
It’s also no myth that facts alone rarely persuade people to make lasting behavioral change.
Rarely. Therefore it sometimes happens.

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Re: "Never time the market" vs. lump sum investment

Post by vineviz » Mon Apr 15, 2019 9:30 am

tadamsmar wrote:
Mon Apr 15, 2019 7:41 am
vineviz wrote:
Mon Apr 15, 2019 7:31 am
It’s also no myth that facts alone rarely persuade people to make lasting behavioral change.
Rarely. Therefore it sometimes happens.
You could win the lottery if you buy a ticket, but it’s still a bad idea.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: "Never time the market" vs. lump sum investment

Post by YoungSisyphus » Mon Apr 15, 2019 11:46 am

Psychologically, it’s interesting to me that there seems to be an underlying belief that having a larger sum of money to spend at one time seems to create different rules for investing. What if instead of having a lump sum of 7 figures, you had a lump sum of 1 dollar. Do the rules change? Are you buying the market right now at a discount or premium? You don’t know regardless of the amount of money you throw on the table.

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Re: "Never time the market" vs. lump sum investment

Post by tadamsmar » Tue Apr 16, 2019 7:47 am

bonzai wrote:
Fri Apr 12, 2019 3:52 am
Hi all,

Just to update - despite all of the opinions against “timing” I did think, that market would drop (due to world politics situations) - meaning I did speculate, and I did time the market - in December 2018 I invested half of my sum and it’s currently up 16%.

Although I do understand the sound logic of why it’s not a good idea, in these turbulent times I think that for big sums like mine it’s better to wait for a “crash” while the money is in the bank account and seize the opportunity when it’s there, than to invest it blindly - of course this is a guess, I’m aware of this, but I think/hope it’s an educated one :) my last (and first) investment certainly supports it.
Do you have $500,000 in a bank account? Money market accounts have a much higher interest rate than bank accounts but they are not FDIC insured. And, if you have $500,000 in a bank account, then only half of it is FDIC insured. One way to remedy that is to use 2 banks.

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bonzai
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Re: "Never time the market" vs. lump sum investment

Post by bonzai » Thu Apr 18, 2019 12:19 am

Hustlinghustling wrote:
Sun Apr 14, 2019 5:03 pm
bonzai wrote:
Sun Apr 14, 2019 2:57 pm
So of course I’m much better off waiting (even waiting a year+) for some crash - any crash (yes, it’s possible to define it as a rule, eg when nasdaq is at a 10 year low, or when the price drops 30% etc)
i’ve defended you till now but recognize this crash could well be much higher than today’s levels. if SP500 doubles from today’s 2900 to 5800, then “crashes” 30% to 4000, your crash criteria would have been fulfilled to buy then but still at a price much higher than today’s. alternatively if you mean 30% off from today’s levels, it is highly conceivably you may also never buy, being forever on the sidelines

“Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves”
Agreed, you’re right about that - which is why I don’t think it’s something that should be done as a routine - but only if one has a strong feeling/estimate (which may be wrong) that a crash is imminent, and they are willing to set a time-limit of sorts for their “waiting period”.

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Re: "Never time the market" vs. lump sum investment

Post by bonzai » Thu Apr 18, 2019 12:30 am

YoungSisyphus wrote:
Mon Apr 15, 2019 11:46 am
Psychologically, it’s interesting to me that there seems to be an underlying belief that having a larger sum of money to spend at one time seems to create different rules for investing. What if instead of having a lump sum of 7 figures, you had a lump sum of 1 dollar. Do the rules change? Are you buying the market right now at a discount or premium? You don’t know regardless of the amount of money you throw on the table.
Oh come on.

If I think I can win 10%+ one time, it’s a single-time risk - and the more money there is, the more significant the win/loss.

If I had 1000$ to invest I wouldn’t even be considering this, because the loss of sitting on the sides lines for a long time could be greater than the 10% (hypothetically) I would win - just 100$.

Also this is not a consideration for routine investments such as a monthly addition to the portfolio - because the more I “gamble” the more the odds are against me. This is not the point as I mentioned several times and only a few understood this perspective of mine as it seems.

In my case as mentioned it could be a hypothetical over 100,000$ win, at a time I believed it’s possible, and I made it.

Will I keep doing this as a routine? No.
Will I try to do this for the second half of my sum? Maybe, didn’t decide yet.

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Re: "Never time the market" vs. lump sum investment

Post by smectym » Thu Apr 18, 2019 1:06 am

mortfree wrote:
Thu Jun 21, 2018 8:42 am
dbr wrote:
Thu Jun 21, 2018 8:35 am
My hypothesis is that people who can't decide between investing now and waiting are really people who have not resolved what their asset allocation should be. It the prospect is too scary it is probably because your anticipated asset allocation is too risky. At least that is something to think about.
could also be financial experience and level of financial education.

‘Ifsomeone gave me a million dollars I would be extra cautious to not screw things up...’
Agree with that last remark which I have placed in inverted commas.

When dispensing investment advice to someone with a 7-figure uninvested sum the watchword is caution.

If you bray boglehead dogma and browbeat your client, or relative or friend, into a one-time lump-sum investment, two issues arise.

Issue A: isn’t a sudden decision to deploy a ton of money into the market at one point in time ipso facto an instance of market timing?

Issue B: should the market annoyingly dump right after your client, friend or relative buckles under to your finger-wagging lectures and follows your advice, what is the blowback?

Those who preach the dogma here, under cover of cute and winsome aliases, don’t have to face the consequences of Issue B.

Smectym

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Re: "Never time the market" vs. lump sum investment

Post by livesoft » Thu Apr 18, 2019 1:30 am

People buy insurance all the time for events that are unlikely to happen.

The DCA folks are simply paying 1% to 3% of total portfolio value (it comes from missing out on expected gains, not from the initial portfolio amount) in order to avoid the one-third chance of doing worse than Lump Sum. I don't know if that amount for the insurance is worth it, but probably so because folks lose that much in other ways: Poor tax-efficiency, using actively-managed funds, paying advisors, and so on.
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Re: "Never time the market" vs. lump sum investment

Post by tadamsmar » Thu Apr 18, 2019 7:33 am

livesoft wrote:
Thu Apr 18, 2019 1:30 am
People buy insurance all the time for events that are unlikely to happen.

The DCA folks are simply paying 1% to 3% of total portfolio value (it comes from missing out on expected gains, not from the initial portfolio amount) in order to avoid the one-third chance of doing worse than Lump Sum. I don't know if that amount for the insurance is worth it, but probably so because folks lose that much in other ways: Poor tax-efficiency, using actively-managed funds, paying advisors, and so on.
The original poster has rejected DCA.

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Re: "Never time the market" vs. lump sum investment

Post by tadamsmar » Thu Apr 18, 2019 7:38 am

bonzai wrote:
Thu Apr 18, 2019 12:19 am
...I don’t think it’s something that should be done as a routine - but only if one has a strong feeling/estimate (which may be wrong) that a crash is imminent, and they are willing to set a time-limit of sorts for their “waiting period”.
Are you willing to set a time-limit of sorts? Have you set a time-limit of sorts? If so, what is your time-limit of sorts?

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Re: "Never time the market" vs. lump sum investment

Post by WhiteRabbit » Thu Apr 18, 2019 8:34 am

bonzai wrote:
Fri Apr 12, 2019 3:52 am
Hi all,

Just to update - despite all of the opinions against “timing” I did think, that market would drop (due to world politics situations) - meaning I did speculate, and I did time the market - in December 2018 I invested half of my sum and it’s currently up 16%.

Although I do understand the sound logic of why it’s not a good idea, in these turbulent times I think that for big sums like mine it’s better to wait for a “crash” while the money is in the bank account and seize the opportunity when it’s there, than to invest it blindly - of course this is a guess, I’m aware of this, but I think/hope it’s an educated one :) my last (and first) investment certainly supports it.

Congrats! You were right and you chose the right time to enter. :sharebeer

(I wish you'd called me!) :wink:

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Re: "Never time the market" vs. lump sum investment

Post by TNWoods » Thu Apr 18, 2019 10:05 am

I only read a few posts in before I saw someone say "it is impossible to time the market", so my response may simply be repeating what others have said later.

It is absolutely possible to time the market.

It is child's play to time the market.

When the market has a very large plummet, that's when you buy in. Whenever that is. Tomorrow, or next month, or 10 years from now, whenever. You don't have to know when it is the absolute bottom, you just have to recognize when it is a large enough dip that it counts as "buying low", so that you can wait for the time in the future to "sell high".

What is impossible is predicting that very large plummet event. You know it when you see it, and you can then jump in, you just can't see it coming.

I was very lucky to have done a "cash-out-refinance" of my home a few months before the very large plummet of 2008. I had plenty of cash to take advantage of that very large plummet, and I didn't need to know if the market was going even lower, all I had to know that long term time frames mean an observed very large plummet is a fantastic opportunity.

Before I found this forum and got educated in the 3-fund philosophy, I also took advantage of a very large plummet in a specific stock. I bought a bunch, only to find that there was a lot more of the plummet yet to occur. I bought more. More plummet. I sold other stocks and bought even more. It took well over a year for that stock to recover, but I had the same attitude about that one stock that everyone here has about the broad indexes, that over time it would recover from the pullback, and would be profitable. (I was right, that stock did recover, and has a return much, much better than any index fund has over the same period.)

The most important point here is not that "timing the market" is a good idea, but that if you have cash available when a very large plummet occurs, then you can take advantage of it by "buying low" in anticipation of "selling high", just like you said you wanted to do. (Rather than the Boglehead way, which is "buy now, sell later-much later".)

In my case, it was completely a coincidence that I had that cash available in late 2008. I didn't intentionally hoard a bunch of cash, waiting for a crash I expected to happen soon. I was in the right place at the right time with cash.

You can absolutely set yourself up to do the same thing.

But that means you might sit there on your cash for 10 years. Or more.

Most people in April and May of 2008 didn't predict the amazing opportunity they would have just 4 months later.

People who decided to wait for a very large plummet in December of 2011 are still waiting, sitting on their stack of cash, and it is unlikely they will ever see that buying opportunity that will be better than the opportunity they had right then and there.

So, if you want to time the market, you can, but you yourself might run out of time before you get a chance to. So follow the cumulative advice of the Bogleheads, and reap the reward of their collective experience and observations. In the long term, past performance is, in fact, predictive of future results. So just buy now and sell later.

TN Woods

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bonzai
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Re: "Never time the market" vs. lump sum investment

Post by bonzai » Thu Apr 18, 2019 11:40 pm

tadamsmar wrote:
Thu Apr 18, 2019 7:38 am
bonzai wrote:
Thu Apr 18, 2019 12:19 am
...I don’t think it’s something that should be done as a routine - but only if one has a strong feeling/estimate (which may be wrong) that a crash is imminent, and they are willing to set a time-limit of sorts for their “waiting period”.
Are you willing to set a time-limit of sorts? Have you set a time-limit of sorts? If so, what is your time-limit of sorts?
Haven’t defined the limit yet, but there is a time limit mechanism in place, and when I feel like making the next step in this sphere I will be defining it, or directly investing the remaining half.

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Re: "Never time the market" vs. lump sum investment

Post by bonzai » Fri Apr 19, 2019 2:02 am

TNWoods wrote:
Thu Apr 18, 2019 10:05 am
I only read a few posts in before I saw someone say "it is impossible to time the market", so my response may simply be repeating what others have said later.

It is absolutely possible to time the market.

It is child's play to time the market.

When the market has a very large plummet, that's when you buy in. Whenever that is. Tomorrow, or next month, or 10 years from now, whenever. You don't have to know when it is the absolute bottom, you just have to recognize when it is a large enough dip that it counts as "buying low", so that you can wait for the time in the future to "sell high".

What is impossible is predicting that very large plummet event. You know it when you see it, and you can then jump in, you just can't see it coming.

I was very lucky to have done a "cash-out-refinance" of my home a few months before the very large plummet of 2008. I had plenty of cash to take advantage of that very large plummet, and I didn't need to know if the market was going even lower, all I had to know that long term time frames mean an observed very large plummet is a fantastic opportunity.

Before I found this forum and got educated in the 3-fund philosophy, I also took advantage of a very large plummet in a specific stock. I bought a bunch, only to find that there was a lot more of the plummet yet to occur. I bought more. More plummet. I sold other stocks and bought even more. It took well over a year for that stock to recover, but I had the same attitude about that one stock that everyone here has about the broad indexes, that over time it would recover from the pullback, and would be profitable. (I was right, that stock did recover, and has a return much, much better than any index fund has over the same period.)

The most important point here is not that "timing the market" is a good idea, but that if you have cash available when a very large plummet occurs, then you can take advantage of it by "buying low" in anticipation of "selling high", just like you said you wanted to do. (Rather than the Boglehead way, which is "buy now, sell later-much later".)

In my case, it was completely a coincidence that I had that cash available in late 2008. I didn't intentionally hoard a bunch of cash, waiting for a crash I expected to happen soon. I was in the right place at the right time with cash.

You can absolutely set yourself up to do the same thing.

But that means you might sit there on your cash for 10 years. Or more.

Most people in April and May of 2008 didn't predict the amazing opportunity they would have just 4 months later.

People who decided to wait for a very large plummet in December of 2011 are still waiting, sitting on their stack of cash, and it is unlikely they will ever see that buying opportunity that will be better than the opportunity they had right then and there.

So, if you want to time the market, you can, but you yourself might run out of time before you get a chance to. So follow the cumulative advice of the Bogleheads, and reap the reward of their collective experience and observations. In the long term, past performance is, in fact, predictive of future results. So just buy now and sell later.

TN Woods
Thank you for this valuable post!

msk
Posts: 1094
Joined: Mon Aug 15, 2016 10:40 am

Re: "Never time the market" vs. lump sum investment

Post by msk » Fri Apr 19, 2019 4:17 am

I mentioned my strategy early up on this thread. My definition of a large plummet is >30% from peak. Otherwise I remain 100% in stocks, inactive. You ALWAYS have funds available by using margin, so when the triggering 30% occurs I buy one-year Call options (on margin). You can also buy multi-year Calls if you are more pessimistic about the recovery process but options do limit your downside. So what do others use as their triggers for a "large plummet"?

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